Twitter rose to $33.77 at the close in New York, the biggest jump since April 15, according to data compiled by Bloomberg. The shares, which are still down 47 percent so far this year, dropped in recent weeks after lockup restrictions on the stock expired and amid investor concerns that user growth is decelerating for the San Francisco-based company.
Investors have been too focused on that slowdown, which Twitter can change with tweaks to its main product and international expansion, according to Anthony DiClemente, an analyst at Nomura who wrote the report. More importantly, he said, Twitter is building out its advertising business faster than projected and has the potential to make money at Facebook Inc. (FB)’s levels.
“I think there’s a very good chance that user growth reaccelerates from here, given product enhancements, given international growth,” DiClemente said in an interview. “When you think about Twitter that way, with over a quarter of a billion users, it’s hard to imagine a valuation that is a lot lower than where it is today.”
Twitter Chief Executive Officer Dick Costolo is working on tweaking the product to keep users more engaged. Currently, tweets are displayed in reverse chronological order based on whom a person follows. Twitter is experimenting with ways to display content based on an algorithm that ranks relevance, similar to how Facebook’s News Feed is displayed, Costolo said today at Re/code’s Code Conference in Rancho Palos Verdes, California.
“We’re already experimenting with delivering that kind of algorithmic content into the timeline based on relevance, based on other people you follow,” he said. “We will look for the right balance of manual curation and algorithmic injection.”
The company is also in the process of figuring out how to serve its China-based advertisers, even though the site is blocked in that country, Costolo said at the conference.
“We’re in the very beginning stages of conversations about what it would look like and feel like” to enter China, Costolo said. “We have lots of advertisers -- Chinese-based advertisers -- and what are the kinds of things we might want to do to work more closely with our Chinese-based advertisers?”
Twitter is trying to prove to investors that it can deliver on its promises of fast growth since a Nov. 6 initial public offering. Last month, the company said membership rose 25 percent in the first quarter, down from 30 percent growth in the previous period.
T. Rowe Price Group Inc. dumped a quarter of its Twitter stake in the first quarter, ending March with 13.56 million shares, according to a May 15 regulatory filing.
At Twitter’s first shareholder meeting as a public company earlier this month, Costolo said all board members, including co-founders Evan Williams and Jack Dorsey, have pledged to hold onto their stakes.
Gabriel Stricker, a spokesman for Twitter, didn’t respond to an e-mail seeking comment on the Nomura report.
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